§ 11. (3) If the restriction is broader than the business sold and the business sold is not coextensive with the boundaries of the United States, it is void.21 The seller is doing more than sell what he has. He is selling a business in which he might engage in the future. The public policy therefore in favor of his being permitted to sell what he has, freely and at the best price, is not applicable. The social interest in freedom of individuals to enter what business they please is not balanced by any social interest in freedom to sell at the best price obtainable. It may be that today there is little danger that the seller will become a charge on the community 22 but that the public may be deprived Rule Co. v. Fringeli, 57 Oh. St. 596 (1898) (Both of these cases involve sales to competitors, but no suggestion has been made that the rule of these cases was limited to the case of a sale to a competitor.); Anchor Electric Co. v. Hawkes, 171 Mass. 101 (1898) where the restriction accompanied a combination of competitors, seems contra to Taylor v. Blanchard supra. 21-Trenton Potteries Co. v. Oliphant, 58 N. J. Eq. 507 (1899) [161]; Bishop v. Palmer, 146 Mass. 469 (1888) [45]; Berlin Machine Works v. Perry, 71 Wis. 495 (1888); Alger v. Thacher, 19 Pick. (Mass.) 51 (1837); Lawrence v. Kidder, 10 Barb. (N. Y.) 641 (1851); Lange v. Werk, 2 Oh. St. 519 (1853); Thomas v. Miles, 3 Oh. St. 274 (1854); Wiley v. Baumgardner, 97 Ind. 66 (1884). A fortiori, it is illegal if in addition to the restriction being broader than the business sold, the sale is to a competitor: Gamewell FireAlarm Co. v. Crane, 160 Mass. 50 (1893) [50] (Sale of one out of fifteen competitors in the United States, to another.) In some cases the courts have not been careful to determine whether the restriction as to territory was broader than the actual extent of the seller's business or not: Diamond Match Co. v. Roeber, 106 N. Y. 473 (1887) [55]; Gamewell Fire-Alarm Co. v. Crane, 160 Mass. 50 (1893) [54]. In Tode v. Gross, 127 N. Y. 480 (1891) where the business sold was dependent upon a secret process, which was also sold, no inquiry seems to have been made as to whether the covenant (which was unlimited) was broader than the business sold. But in Watertown Thermometer Co. v. Pool, 51 Hun. (N. Y.) 157 (1889) the court seems to have sustained a restrictive covenant which was broader than the business sold, going upon the reasonableness of the advantage to the vendee. 22-But see Gamewell FireAlarm Co. v. Crane, 160 Mass. 50 (1893) [55] ("To exclude a person from manufacturing or selling anywhere in the United States or in the world machinery designed for certain purposes, in which that person has acquired great skill, may operate to impair his means of earning a living.") of the benefit of his entering the business, and that a possible competitor may be eliminated, constitute an appreciable danger.23 It has even been suggested that the fact that the restriction is broader than the business sold gives rise to the inference that it is exacted for the actual purpose of monopoly,24 but this seems hardly so today. § 12. The restriction may be broader than the business sold, because it relates to a territorial area larger than that in which the business was carried on,25 or because it concerns a related business which was not not actually carried on by the seller.26 § 13. When a professional man sells his practice and covenants not to carry it on in the place in question for the remainder of his life, it has been argued that the restriction is broader than the necessities of the case require, since it would still be in operation if the buyer abandoned practice or died in the lifetime of the seller.27 The reply is that just as the seller has sold his practice to the buyer, so the buyer may again sell his practice to another buyer or take in a partner.28 Even if the first buyer 23-Bishop v. Palmer, 146 Mass. 469 (1888) [48] (Two principal grounds on which such contracts are held to be void are that they tend to deprive the public of the services of men in the employments and capacities in which they may be most useful, and that they expose the public to the evils of monopoly."); Gamewell Fire-Alarm Co. v. Crane, 160 Mass. 50 (1893) [55] ("The principal object of the stipulation was, we think, to prevent the manufacture or sale by the defendant of any instruments which would serve the same purpose as those made and sold by the plaintiff, and thus to enable the plaintiff more completely to control the market."') 24-Mitchel v. Reynolds, 1 P. Wms. 181 (1711) [9] ("It shows why a contract not to trade in any part of England, though with consideration, is void, for there is something more than a presumption against it, because it can never be useful to any man to restrain another from trading in all places, though it may be, to restrain him from trading in some, unless he intends a monopoly, which is a crime.") 25-Bishop v. Palmer, 146 Mass. 469 (1888) [45]. 26-Gamewell Fire-Alarm Co. v. Crane, 160 Mass. 50 (1893) [50] (The seller, who was a manufacturer, covenanted not to carry on the business of manufacturing or selling, and not to enter into competition with the buyer either directly or indirectly.) 27-Per Denman, C. J., in Hitchcock v. Coker, 6 A. & E. 438 (1837) [16]; Per Van Fleet, V. C., in Mandeville v. Harman, 42 N. J. Eq. 185, 193 (1886) [32, n. 9]. 28-French v. Parker, 16 R. I. dies in the lifetime of the seller, the fact that he had a practice protected from the seller's competition may make his practice an asset which his administrator can sell.29 Furthermore, the buyer purchased the seller's practice, which means the practice which the seller would have during his life. It would hamper such transactions too much if the covenant had to be worded so as to take care of all the contingencies under which the restriction might cease to be of value to the buyer. §14. Covenants which seem to be broader than the seller's business may be divisible, so that the separable part which is not broader than the seller's business may be enforced.30 §15. (4) If the business sold is coextensive with the boundaries of the United States, but the restriction is world-wide, is it valid? It has been said that where the restriction related to the territorial area of a foreign country, that fact could not be 219 (1888) [29] ("If the complainant here wished to retire from his practice, and sell it, he could probably sell it for more if he would secure the purchaser from competition with the defendant forever than he could if he could only secure him from such competition during his own life. So, if he wished to take in a partner, he could, for the same reason, make better terms with him.'') 29-Hitchcock v. Coker, 6 A. & E. 438 (1837) [24]. 30-Trenton Potteries Co. v. Oliphant, 58 N. J. Eq. 507 (1899) [161] (Restriction applied within any state in the United States of America, or within the District of Columbia, except in the State of Nevada and the Territory of Arizona," and was held applicable to the area of each State disjunctively described, and enforced in the State where the covenantor's business was carried on); Smith's Appeal, 113 Pa. St. 579, 590 (1886) (restriction in the County of Le high or elsewhere"); Thomas v. Miles, 3 Oh. St. 274 (1854) (restriction in "said city or elsewhere'); Lange v. Werk, 2 Oh. St. 519 (1853) (restriction in the County of Hamilton, in the State of Ohio, or any other place in the United States." Held valid as to Hamilton County); Wiley v. Baumgardner, 97 Ind. 66 (1884). In Oregon Steam Navigation Co. v. Winsor, 87 U. S. 64 (1873), the restriction was held divisible as to the time it was to be operative. It was enforced during the time it could properly be operative. Sed quaere ad hoc. In Hubbard v. Miller, 27 Mich. 15 (1873) a covenant not to carry on a certain business was, without any express limitation as to territory, construed as forbidding the carrying on of the business only at the city where the business sold had been carried on, and such territory round about as the business would naturally and reasonably be carried on in. an argument against the validity of the covenant.31 This may be doubted; for it is now apparent that restrictions upon doing business in a foreign country may have a very unfortunate effect upon the public interest in the domestic jurisdiction— especially where the covenantee is engaged in a rival business in the foreign country as well as in the domestic jurisdiction. SECTION 4 RESTRICTIVE CONTRACTS ACCOMPANYING THE SALE OF A BUSINESS TO AN EXISTING COMPETITOR, WHERE THE RESTRICTION IS SO FAR LIMITED AS TO BE VALID IF THE SALE WERE NOT TO A COMPETITOR §16. If the sale be illegal 32 then the restriction certainly is. But if the sale taken by itself be legal, the courts have made no distinction, so far as the legality of the restriction is concerned, between the case where the sale is to be a competitor and where it is not. Accordingly, the restrictive covenant and the sale to a competitor have been sustained both where the title to tangible assets used in the business passed,33 and also where 31-Nordenfelt v. Maxim Nordenfelt Guns Co. [1894] A. C. 535 [44] ("The appellant appeared willing to concede that it might be good if limited to the United Kingdom; hut he contended that it ought not to be world-wide in its operation. I think that in laying down the rule that a covenant in restraint of trade unlimited in regard to space was bad, the courts had reference only to this country. They would, in my opinion, in the days when the rule was adopted, have scouted the notion that if for the protection of the vendees of a business in this country it were necessary to obtain a restrictive covenant embracing foreign countries, that covenant would be bad. They certainly would not have regarded it as against public policy to prevent the person whose business had been purchased and was being carried on here from setting up or assisting rival businesses in other countries; and for my own part I see nothing injurious to the public interests of this country in upholding such a covenant.'') 32-As to the principles governing the validity of the sale see post §§ 48-92 which deal with combinations. 33-Nordenfelt v. Maxim Nordenfelt Guns Co., [1894] A. C. 535 [33]; Diamond Match Co. v. Roeber, 106 N. Y. 473 (1837) [55]; United States Chemical Co. V. Provident Chemical Co., 64 Fed. there were no such assets, and the only way in which the business could be sold was for the seller to agree not to carry it on.34 Where part of a business has been sold to a competitor by merely covenanting not to carry on the part specified, the sale and the restriction have been sustained.35 §17. In some cases there were special elements which furnished arguments in favor of the validity of the sale and the restriction. Thus where it appeared that the competitor who sold out had recently gone into the business for the purpose of engaging in a cut-throat competition and being bought off, there was presented an actual case of excessive competition, and the buyer was in the position of endeavoring to protect his legitimate and established business from the seller's unconscionable conduct.36 So where it appeared that the seller was making 946 (1894) [98]; Trenton Potteries Co. v. Oliphant, 58 N. J. Eq. 507 (1899) [161]; Kellogg v. Larkin, 3 Pinn. (Wis.) 123 (1851); Chappel v. Brockway, 21 Wend. (N. Y.) 157 (1839); Van Marter v. Babcock, 23 Barb. (N. Y.) 633 (1857); Moore & Handley Hardware Co. v. Towers Hardware Co., 87 Ala. 206 (1888); Beard v. Dennis, 6 Ind. 200 (1855); California Steam Navigation Co. v. Wright, 6 Cal. 258 (1856); Hubbard v. Miller, 27 Mich. 15 (1873). But see, semble, contra: Gamewell Fire-Alarm Co. v. Crane, 160 Mass. 50 (1893) [50]; Carrol v. Giles, 30 S. C. 412 (1888). 34-Leslie v. Lorillard, 110 N. Y. 519 (1888) [65]; Wood V. Whitehead Bros. Co., 165 N. Y. 545 (1901) [72]; Wickens v. Evans, 3 Y. & J. 318 (1829) [84]; National Benefit Co. v. Union Hospital Co., 45 Minn. 272 (1891) [94]; Mapes v. Metcalf, 10 N. D. 601 (1901). 35-Leslie v. Lorillard, 110 N. Y. 519 (1888) [65]; Wickens v. Evans, 3 Y. & J. 318 [84]; National Benefit Co. v. Union Hospital Co., 45 Minn. 272 (1891) [94]. 36-Leslie v. Lorillard, 110 N. Y. 519 (1888) [65]; United States Chemical Co. v. Provident Chemical Co., 64 Fed. 946 (1894) [98], semble, (The court noted that the seller sold only part of its tartar business, so that it had been in a particularly advantageous position to cut prices in that part of the business sold, while making a profit on the other part, thus practicing the scheme of local price cutting to put the buyer out of business. The court speaks of the seller as being a dangerous and aggressive rival. The court said: "The plaintiff was making inroads upon the defendant's business, and greatly cutting the prices of its sole manufactured product, while with the plaintiff this product was but a single feature of its manufacturing plant. The defendant had a perfect right to buy off the competition of a dangerous, powerful and aggressive rival. The law of self-defense |